IPO-bound Awfis’ Amit Ramani on the startup’s differentiated business model, demand for co-working spaces in India

Amit Ramani, founder and CEO, Awfis

Awfis’ model of managed aggregation of co-working spaces, and partnering with institutional landlords on profit-sharing basis to remain capital light, and demand predictability makes it a good long-term business, said chairman and CEO Amit Ramani.

Awfis Space Solutions is less than a week away from its initial public offering (IPO). This is the first time ever that a co-working startup is getting listed on the domestic bourses, coming at a time when global co-working peers like WeWork has collapsed.

Ramani said that when Awfis started out in 2015, out of the total 850 million square feet of workplace spaces, around 30 percent was managed by institutional landlords. Of this, almost 70 percent was owned by high net-worth individuals (HNIs), mid-tier developers and family officers.

He found an opportunity here and came up with the managed aggregation model, wherein he would approach the landlord to partner with Awfis and ask them to put in majority of the capital towards the fit up of the offices. Ramani would also ask for an initial 5 to 13-month no minimum guarantee time frame.

“We were able to solve for two big problems in the co-working space -- one, it became capital light, because the partner is giving the capital. Second, you have mitigated your risk because now instead of giving a fixed rate, it's a profit sharing. So I think these two fundamental problems is what we solved for,” he said at the startup’s IPO announcement conference in Mumbai.

When it started out, Awfis was setting up 30,000 square feet spaces in which clients with 10 seats to clients with 200 seats could co-exist. Each centre or officer would have about 15-20 clients in total. As of December 2023, Awfis’ network has expanded to 169 locations, close to over 105,000 seats across 16 cities and 52 micro markets.

“Today almost 66% of the portfolio is in managed aggregation. Because we are talking with the landlord, our cost of curating a seat is half of the industry average,” Ramani said.

As COVID happened, the company also expanded to allied services which includes end-to-end solutions like offering IT solutions, food and beverages to curating and designing individual office spaces for corporates.

Across this networking business, about 11 percent of the startup’s revenue now comes from allied services through food and beverage, alliances, IT services, meeting room sales, parking, storage, and so on.

By building this network of businesses across large corporates, SMBs and startups, about 33 percent of its customers have taken seats in more than one centre. Around 32 percent of new sales come as expansion from existing current client base. “Today there is a very strong network effect which has started coming in our business model,” said Sumit Lakhani, deputy CEO, Awfis.

Lakhani added that the business also comes with certain predictability, as clients with 100 plus seats are having a lock-in period of around 22 months.

India demand

Ramani said the overall India story for commercialised real estate continues to remain strong as it is still an under-commercialised.

A lot of this demand is going to come from the IT/ITeS and GCC businesses which are also now experimenting for flex pay options especially in the tier-2 and tier-3 cities before taking a call on whether to set up campuses.

Around 46 percent of Awfis’ revenue is coming from IT/ITeS and tech businesses segment, Ramani said.

Speaking on what made Indian co-working startups to perform better as compared to global peers, Ramani said, “I think it is working in India, because the demand is more than supply. So every kind of contract, be it managed office spaces for a certain duration, or let's have a corporate that establishes office for three-five years or to SMEs looking for 50 seats, demand for commercialized space is propping up the industry.”

IPO price band

The startup’s IPO launching on May 22 has been set a price band of Rs 364 to Rs 383 per share. The total size of the offering will be around Rs 576-599 crore.

Going by the upper end of the price band, this will value Awfis at Rs 2,659 crore of around $318 million. The startup was last valued at $110 million during it previous fund raise in 2022.

According to its Red Herring Prospectus (RHP), Peak XV Partners (formerly Sequoia) which is looking to offload about 6.61 million shares currently holds 22.86 percent stake in the company; Bisque Limited (a unit of ChrysCapital) which holds about 23.47 percent is offloading 5.6 million shares, and Link Investment Trust that has 0.36 percent stake will be selling 85,601 shares.

Founder Amit Ramani holds 18.19 percent stake on a fully diluted basis.

Post the IPO, Peak XV’s stake will decline to 10-11 percent and ChryCapital through Bisque will hold about 13-14 percent stake, Ramani said.

The funds raised from the IPO will be used for capital expenditure towards establishment of new centers, and other working capital requirements.

Awfis Space Solutions is the country’s largest flexible workspace solutions provider, leading among the top 5 benchmarked players in the segment as of June 2023.

They offer diverse workspace solutions catering to individual flexible desk needs, customised offices for various entities including start-ups, SMEs, and large corporations.

The firm reported a revenue of Rs 545.28 crore in FY23 against Rs 257.05 crore a year ago. Net loss for the year stood at Rs 46.64 crore against Rs 57.16 crore a year ago.

As of the nine-month period of FY24 till December, net loss stood at Rs 18.94 crore on revenue of Rs 616.5 crore.

ICICI Securities, Axis Capital, IIFL Securities, and Emkay Global Financial Services are the book running lead managers to the issue.

Also read: Ashish Kacholia-backed Awfis Space Solutions IPO to hit D-Street on May 22; price band fixed at Rs 364-386